news archives 
economics 2

“In a warehouse in Sarasota, Fla., a company called Gemesis
is growing diamonds in two dozen or so high-pressure, high-temperature
crystal growth chambers, each the size of a washing machine. Within
each chamber, a tiny sliver of natural diamond is bathed in a molten
solution of graphite and a proprietary metal-based catalyst at approximately
1,500 °C and 58,000 atm of pressure. Slowly, carbon precipitates
onto the diamond seed crystal. A gem-quality, 2.8-carat rough yellow
diamond grows in just under three-and-a-half days.”

“Messrs Dooley, Folkerts-Landau and Garber put their faith in the
[asian] rigged exchange rates and regulated capital markets of Asia. Mr
Greenspan puts his faith in market forces and the flexibility of America.
None of them thinks America should lose any sleep over its current-account
deficit. All of them caution against protectionism, of which there have
recently been unnerving signs.

“Most of the discomfort caused by America's deficit will be felt
neither in Asia nor in America but in Europe.”

Europe is already uncompetitive due to endemic government interference in
markets.

Meanwhile, the EMU system (Euro) is weakening under the fissures now appearing
in the Europen stability pact, as German and French politicians blithely ignore
it.

In Europe, there is the fascinating real world experience of watching an
inflationary currency grow with unpredictable, but inevitably nasty, results.

You may also watch the awful reality slowly seeping through dull and economically
illiterate minds – from another Economist article:

“Does this matter? In the long run, the question that Mr Zalm raises
is certainly troubling. How can the euro-area stop fiscal irresponsibility
in one country damaging others? And beyond the economics, there is a political
problem. The EU is a "community of laws". It is soon to adopt
a constitution full of solemn and legally binding commitments, including
the same excessive-deficit procedure that has just been wilfully flouted.
If law is replaced by political bargaining, with bigger countries bullying
their way out of a tight corner, the very basis of the Union is undermined.
And it makes it far harder to insist on the new EU members who will join
next May observing all the rules.”

Riding the Euro bus is for self-destructive personalities who wish to experience
road kill from the inside!!

“The most plausible explanation for this disparity, says Paserman,
is that in a closed country, corrupt officials are obliged to spend their
ill-gotten gains at home. Even if this money is spent on the black market,
it still helps boost the nation's economic growth. But in open nations,
corrupt money leaves the country, doing nothing to relieve poverty, so encouraging
more corruption.”

This is a dubious argument, maybe the data could be
interpreted as rich economies tend to beome open.

Editorial
Perhaps the underlying question behind the concerns expressed in the item
is, “How to replace Alan Greenspan with a hack?”

Fortunately, I think the USA can do better than that.

To understand the difference between the position of Greenspan and that of
New Zealand, start by thinking ‘reserve
currency’. This has ever looming, large implications in Greenspan’s
decisions.
Incidentally, $US reserve currency status also contains the root cause of
the hysteria of European socialists, as they desperately attempt to generate
panic over the dollar. It is a large stakes game, socialism may be dying,
but the cornered rat can still be dangerous.

In the speech, Greenspan effectively asks two questions.
First, “How much can we rely upon predictive models to automate the
setting of economic policy?” It is well established that such automated
systems usually tend to out-perform human intuition, with a possible exception
of the very best practitioners in any field. An exception that would include
Greenspan.

Secondly, he asks, “Do you wish to take a fairly low probability, extremely
costly risk, or would you prefer a somewhat more probable, but less costly
risk?” These are the decisions that people in highly responsible positions
have to take as a normal part of their duties. It is why the most successful
of them can command such high rewards.

The Argentinean press has taken to talking about "African situations",
and the main cause of these appalling scenes is poverty. The recession has
made one in five Argentineans jobless, the peso has plummeted in value,
and food prices have soared. Bizarrely, while people go hungry, the country
is still producing grain, soya, corn, and meat for export.

Why are there poor in Argentina?
Why is food being exported while people starve? A common pattern in human
experience, said to be a contributory cause of the Irish potato famine starvation.

A reason for this state of affairs can be a belief that the poor deserve
their poverty, by virtue of not working and that to give them food would encourage
them to live on charity. Of course, if they are born in a hovel with no capital
and gain only poor education, rising in the society would take extraordinary
ability, drive and maybe luck. If your family already has capital and can
educate you to a high standard, your ability to survive and flourish is clearly
much greater on the average.

Here
is an article on the growing concentration of wealth in South America, with
the suggestion of opening US markets to Brazil and others. How much is the
relationship between large corporations, and the kleptocracies in backward
countries, corrosive to the interests of the poor? Does the concentration
of wealth raise the country?

Gini
data
(Gini is a measure of inequality of earnings: the higher
the number, the higher the inequality. See
here for more.)